Trade Risk Research Articles

On the Assessment of Coherent Risk-Capital Structures

We argue that asset liquidity risk associated with the uncertainty of liquidating multiple-assets over a given holding period, particularly for thinly traded or emerging markets securities under adverse market conditions, is a key factor in formalizing and measuring overall trading risk and is therefore an important component to model. This paper proposes a practical framework for the quantification of asset liquidity risk, and its impact on economic capital allocations, for multiple assets’ portfolios.

The influence of Russia's 2010/2011 wheat export ban on spatial market integration and transaction costs of grain markets

AbstractStrong harvest shortfall and high world market prices prompted the Russian government to implement a wheat export ban in 2010 aiming to dampen domestic wheat prices. Building on regional price and trade data of Russia's wheat producing regions, we find strengthened domestic wheat market integration during the export ban period. Market integration decreased to its pre‐ban level in the post‐ban period; however, higher transaction costs resulting from increased risk of domestic grain trade during the export ban continued to prevail. Although market integration was temporarily strengthened, the export ban generally hampers market development in the long run.

Risk Capital Allocation under Market Liquidity Constraints

We develop measures of certain kinds of liquidity trading risk that is useful for completing the definition of market risk and for predicting liquidity-adjusted VaR (L-VaR) under illiquid market conditions. We argue that asset liquidity risk associated with the uncertainty of liquidating multiple-asset portfolios over a given holding period is a key factor in the computation of a credible risk-capital allocations in financial trading units.

Quantitative Analysis of the Mexican Stock Market: Applications to Risk Management Processes

The aim of this paper is to fill a gap in the trading risk management literature and particularly from the perspective of emerging and illiquid markets, such as in the context of the Mexican financial markets. In this paper, we demonstrate a comprehensive and proactive approach for the measurement, management and control of equity trading risk exposure, which considers proper adjustments for the illiquidity within a multi-security setting.

The Effect of Online Search on International Trade

ABSTRACT In the literature, search engines are considered as effective tools for obtaining information. However, little attention has been paid to the effect of search engines on international trade even though information (barrier) is very important in international trade. To address this issue, we analyse how online search, proxied by Google Trends Interest by Region (GTIR), affects international trade in a classic gravity model. Our results show that online search intensity between the two countries can significantly promote international trade. This finding is robust to a wide range of tests, including instrumental variable estimation, different specifications and different estimators. Mechanism analysis shows that online search is likely to increase trade by overcoming unfamiliarity and reducing trade risks. Since the role of online search is similar to that of traditional networks, we further conduct extended analysis and find that online search is likely to substitute, rather than complement, migration networks in international trade. Since many traditional networks are broken due to the pandemic, online search is promising to become increasingly important in the future.

Risk and Ambiguity in Turbulent Times

This paper focuses on the 2008 to 2020 period during which two major crises, affecting the economy and the financial markets, occurred. Between 2008 and 2020, there were less extreme tail events, including the lingering Eurozone and Greece crises. In particular, after extremely high stock market volatility and volatility of volatility (VoV) during 2008, the long-run average volatility declined to about 20% and the VoV to around 100%. This paper analyzes this period through the lens of risk and ambiguity (uncertainty). It aims to address the question: what are the financial markets that trade risk---the volatility derivatives markets---telling us? To this end, this paper uses several measures of uncertainty. This paper reviews the history of volatility and uncertainty measures and discusses their informativeness. It then discusses the information derived from volatility derivatives.

What drives the illegal parrot trade? Applying a criminological model to market and seizure data in Indonesia

High global and domestic demand for parrots (Psittaciformes) as pets, and consequent removal from the wild for the illicit trade have significantly contributed to their severe decline worldwide. While the trade is vast, not every parrot species is at equal risk of being traded, and there is controversy concerning the role of demand and the opportunity-based factors driving the illicit wildlife trade. The criminological model CRAAVED was used to analyze the factors associated with traded parrots in Indonesia, the country shown to have the highest priority for parrot conservation. We quantified the relative importance of CRAAVED components that drive trade risk by using advanced multivariate, phylogenetically controlled models. Three factors were significantly predictive of trade variation, whether the species was disposable (i.e. most legally exported species), enjoyable (i.e. most attractive), and accessible by people, suggesting that demand- and opportunity-based factors together can partially explain the illegal parrot trade in Indonesia. Our analysis has important implications for parrot conservation and the broader illegal pet trade, and is of considerable value for developing strategies at national and international levels for helping to control wildlife trade.

Trade structure and risk transmission in the international automotive Li-ion batteries trade

Lithium-ion batteries (LIBs) are an essential part for electric vehicles (EVs) and have experienced rapid growth with the strong demand for EVs. Concerns over the sustainable supply of EV-LIBs have been voiced, but only a few studies have investigated the international trade in EV-LIBs, which has a significant impact on EV production in the complicated and volatile international trade environment. To fill this gap, this study investigates the international EV-LIB trade from a dynamic perspective. First, the dynamic structural evolution of the EV-LIB trade from 2012 to 2019 is explored from three perspectives, i.e., backbone structure, geospatial characteristics and trade communities, by constructing a weighted and directed network. Second, the hidden systemic risks in the international EV-LIB trade are revealed by the proposed trade network risk transmission (TNRT) model in two supply shortage scenarios. The results show a heterogeneous structure in the backbone network, and the trade barycenter is transitioning from Asia to Europe. In addition, a “robust-yet-fragile” characterization is revealed in the global EV-LIB trade network, and the hidden risks in leading EV-LIB exporter nodes and trade edges are uncovered. The findings will support authorities seeking effective strategies to manage the EV-LIB trade and build a more resilient trade system.

Staying safe: how young women who trade sex in Toronto navigate risk and harm reduction.

Celling Sex was a community-based participatory research project that used a strengths-based approach to explore the agentic harm reduction practices employed by young women who trade sex and learn about their experience accessing health and social services. Fifteen racially diverse young women participated in interviews. They described how they tried to stay safe and advice for others. Each participant also individually made a brief digital video (cellphilm) to tell their story. Participants were invited to a private screening at which cellphilms were screened and common themes identified. The interviews and cellphilms were subsequently coded according to these themes. Participants identified a number of trading risks including: physical risks (unwanted pregnancy, STIs, and violence), social risks (racism and fetishisation), and mental health risks. To mitigate these concerns, participants detailed the harm reduction strategies they used which included use of technology, screening measures, boundary setting, and actively incorporating sexual health protections. Young women who trade sex are keenly aware of the risks inherent in transactional relationships and proactively negotiate and navigate harm reduction strategies in the context of deep systemic barriers. Further intervention may be necessary for them to actualise these strategies and access important forms of health and social support.

International Import and Export Trade Forecasting Algorithm Based on Heterogeneous Dynamic Edge Computing System

As a new computing model, how to use edge computing to forecast import and export trade has become an issue of concern. This research mainly discusses the prediction algorithm of international import and export trade based on heterogeneous dynamic edge computing system. The dynamic task migration system studied in this paper mainly includes four parts: edge computing environment simulator, task generator, resource predictor, and migration decision maker. These four parts are not independent modules in the working process; they will interact with each other in the edge computing environment. In the data processing offloading strategy, the customs business personnel transfer the trade data that need to be predicted to the edge device cluster through the mobile terminal. After receiving the data transmitted by the business personnel, the edge device cluster uses data processing technology to process the data. After the data processing operation is completed, the processed data is directly used for prediction work. After the prediction work is completed, the data and results are uploaded to the central server. Finally, after the prediction work is completed, the edge device will feed back the prediction result to the mobile terminal and display the result on the user interface through the mobile terminal so that business personnel can understand the trade risk status. From August 2018 data application period, the monthly data of the import and export trade volume for the subsequent time span of ten years were regularly forecasted, and the correlation coefficient was still over 83%, and the RMSE also dropped significantly. The system designed in this study can effectively predict the annual estimated value of various economic indicators of international import and export trade.

ASSESSMENT AND DOCUMENTATION OF FOREIGN ECONOMIC TRANSACTIONS IN TERMS OF RISK

Identification, documenting and reliable assessment of risks of an enterprise foreign economic activity is a prerequisite for effective and stable operation of a business entity. The need to reflect the consequences of risks of foreign economic activity and measures undertaken to minimize them in order to avoid losses and negative results from foreign economic transactions necessitated the development of a risk-oriented accounting system of foreign economic activity of an entity. The article presents the main components of a risk-oriented accounting system. With the purpose of forming a proper documentation of foreign economic transactions in terms of risk, the forms of primary and consolidated documents are proposed. The usage of the devised forms of primary documents provides the formation of the essential informational basis to assess their impact on the performance of the enterprise. In order to reflect properly the consequences of risks and measures taken to minimize them, the main methods of assessing the risks of foreign economic activity are identified and methodological support for quantitative assessment of foreign trade risks is proposed, taking into account the probability of their occurrence and impact on foreign trade performance.

Virtual Water Trade in the Yellow River Economic Belt: A Multi-Regional Input-Output Model

The sustainable and efficient use of water resources has gained wide social concern, and the key point is to investigate the virtual water trade of the water-scarcity region and optimize water resources allocation. In this paper, we apply a multi-regional input-output model to analyze patterns and the spillover risks of the interprovincial virtual water trade in the Yellow River Economic Belt, China. The results show that: (1) The agriculture and supply sector as well as electricity and hot water production own the largest total water use coefficient, being high-risk water use sectors in the Yellow River Economic Belt. These two sectors also play a major role in the inflow and outflow of virtual water; (2) The overall situation of the Yellow River Economic Belt is virtual water inflow, but the pattern of virtual water trade between eastern and western provinces is quite different. Shandong, Henan, Shaanxi, and Inner Mongolia belong to the virtual water net inflow area, while the virtual water net outflow regions are concentrated in Shanxi, Gansu, Xinjiang, Ningxia, and Qinghai; (3) Due to higher water resource stress, Shandong and Shanxi suffer a higher cumulative risk through virtual water trade. Also, Shandong, Henan, and Inner Mongolia have a higher spillover risk to other provinces in the Yellow River Economic Belt.

Consumers’ Perception of Risk Towards Artificial Intelligence Technologies Used in Trade: A Scale Development Study

In today’s digitalizing world, internet, mobile technologies, nanotechnologies and learning algorithms continue to develop and gain essential places in our lives. The use of artificial intelligence in wholesale and retail trade enable better analysis of customer requests and the development of effective marketing strategies. However, although these cutting-edge technologies provide significant advantages to businesses, some risks may arise as these technologies continuously develop, and it eventually becomes harder to control the pace of development. Many famous scientists and entrepreneurs are worried that artificial intelligence could have negative consequences for humanity if it does not develop safely, and they suggest that urgent measures need to be taken as they believe that it may pose a significant threat to humanity. The starting point of this study is to learn the point of view of consumers on this technology, as well as scientists or entrepreneurs. The purpose of this study is to determine how consumers perceive these risks. In this direction, the literature focused on the issues related to artificial intelligence technologies in trade was examined. In light of the information obtained from the literature, the Artificial Intelligence Technologies Used in Trade Risk Perception Scale (AITUTRPS) was developed.

Production coopetition strategies for an FV automaker and a competitive NEV automaker under the dual-credit policy

This paper investigates the strategic choices in production between competition and coopetition for a fuel vehicle (FV) automaker and a rival new energy vehicle (NEV) automaker under the dual-credit policy. A benchmark competition model and three coopetition models are formulated: a Cournot competition production strategy, a unified production strategy, an FV priority production strategy, and an NEV priority production strategy. Based on these four production strategies, this study examines the optimal strategies for both parties in a stable credit market and with credit trading risk. The unified production strategy is always the most profitable strategy in a stable credit market, although it is also the most difficult strategy for the coexistence of FVs and NEVs in the vehicle market. However, cooperation in credit trading rather than competition in production has proven to be the optimal strategy in any scenario for coping with risk in an unstable credit market. Moreover, for the dual-credit policy, maintaining a relatively high credit price is often more conducive to promoting the expansion of NEVs than setting a high production ratio of NEVs. This study also examines the impact of the credit coefficient, credit equilibrium and NEV substitutability on both parties’ production decisions and profits. Our study provides important managerial implications that can be utilized as strategic guidance for FV/NEV automakers to pursue coopetition under the dual-credit policy.

Foreign experience in minimizing risks in trade and economic relations

Foreign experience in minimizing risks in trade and economic relations

When Trading in Emerging Markets, Assess Liquidity Risks

Calculating liquid asset risk can be useful for any investor with a trade portfolio, as well as for financial institutions, as liquidity crises have been the force behind many bankruptcies. That is why more and more financial entities are using L-VaR techniques to measure the different trade risks. Specifically, they turn to custom-made internal risk-assessment models to respond to the traits of each institution.

Анализ и прогнозирование финансовых рисков розничных торговых сетей

The relevance of the problem under study is due to the fact that, despite the many works devoted to the theoretical and applied aspects of risk research, the specifics of the formation of financial risks in the activities of retail trade networks have not been sufficiently studied. In particular, there is no methodology and practical recommendations for quantitative risk assessment using statistical methods that allow to identify trends and patterns in the dynamics of risk indicators, to consider external and internal risk factors, the results of which should be used as a basis for developing measures to reduce the risk of retail trade. networks. The aim of the work is to improve the methodology for assessing financial risks based on methods of statistical, economic and financial analysis. The article presents the results of a quantitative assessment of financial risks according to the approach developed and tested on the data of the retail trade network “Magnit”. For a quantitative assessment of the financial risks of a retail trade network, the authors proposed a system of five profitability indicators. The analysis of trends and patterns in the dynamics of profitability indicators, as well as factors influencing them, was carried out using one-dimensional and multidimensional data sets. Forecasts of profitability indicators are not contradictory and indicate the presence of a risk of losses, therefore, a detailed assessment of financial risks was carried out. It was revealed that the indicators of profitability of the retail trade network “Magnit” in the analyzed period had a statistically significant relationship with the indices of the physical volume of retail trade and consumer prices, as well as the number of economic entities in retail trade. The assessment of the financial condition of the organization by indicators of financial stability and a comprehensive assessment by the five-factor model of E. Altman are given. The scientific novelty of the work consists in improving the methodology for assessing financial risks based on statistical, economic and financial methods of analysis, as well as developing proposals for reducing financial risks for network trading organizations. The proposed methodology and research results are of interest to decision makers in network trade organizations, regulatory bodies at the regional and federal levels. Prospects for further research on the issues of assessing and predicting financial risks of retail chains consist in a more detailed study of external factors, in particular, legal restrictions, changes in the level and structure of consumer demand due to the pandemic that began in 2020.

ТОРГОВЫЕ И ЭКОЛОГИЧЕСКИЕ РИСКИ СОВРЕМЕННЫХ МОДЕРНИЗИРУЕМЫХ ЭКОНОМИК: ВЗАИМОСВЯЗЬ И ДИСПРОПОРЦИИ

The article presents the results of the research about the directions of development of countries with a modernized economy, including the advantages and limitations for the development of raw material exports. The possibilities of preserving the raw material strategy for the development and restructuring of industry and agriculture in developing countries, taking into account the projected commodity super — cycle, are identified. At the same time, the interrelationships of trade and competition risks in the context of increasing international exchange and increasing the likelihood of environmental risks, including the spread of the use of alternative energy, are determined.

International trade risk management under the impact of globalization

Doing business in condition of international trade, a stable and competitive business environment is vital to operate efficiently and attract inward investment. Businesses can assess these factors alongside challenges such as corruption, political instability and terrorism to understand the strengths and weaknesses of an operating environment and for strategic investment decisions. In terms of open economy and globalization trends, business faced a lot of different challenges with their specific risks, hence an effective risk assessment approach and management is extremely vital for economic security of business and especially for all country doing business with other countries trying to succeed. The article presents risk management plan content that helps to structure business risk management process and provide with the measures how to deal with risks.

A Value-at-Risk Modeling Techniques to Computing Equity Trading Risk Exposure in Emerging Stock Markets

The attempt of this article is to fill a gap in the equity trading risk management literature and particularly from the perspective of emerging and illiquid financial markets, such as in the context of the Moroccan stock market. This paper provides real-world risk management techniques and strategies that can be applied to equity trading/investment portfolios in emerging markets. In this work, we divulge a proactive approach for the measurement/management of risk exposure for financial trading portfolios that contain illiquid equity securities.